Search results

The purpose of this paper is to identify the sources of variation in firm performance. This is one of the cornerstones of strategy research, i.e. the relative importance of industry and firm-level effects on firm performance. Multilevel analysis is well suited to analyze variance in performance when the data are hierarchically structured (industry segments consist of firms, firms operate within the context of industry segments). The Belgian industry studied is a service industry that consists of about 25 electrical wholesalers. Data were collected from 20 firms during the period 1998–2003 from responses to a questionnaire sent to all the firms in the market. The sample in the data set covers more than 95 percent of the market (in sales), as the missing firms were just fringe competitors. The results show that firm effects explain most of the variance in four performance variables. That bears out the importance of each firm having its own specific, idiosyncratic resources and competences. The explanatory power of firm effects varies by about 30–40 percent while the intra-industry effect explains around 10 percent of the variance. Even though firm effects are dominant, intra-industry effects explain a significant portion of the variance in firm-level performance. The firm effect is smaller than in previous studies. The firm effect varies across the performance measures: firm effects are higher for returns on assets than for profit margins. The industry segment effect (or intra-industry effect) is more independent of the dependent variable. The industry segment effect is in line with previous studies on the strategic group effect. Top managers should carefully choose and monitor the intra-industry domain they are in.

The purpose of this paper is to present a review of variance decomposition studies of firm performance and the theoretical foundations that served as the antecedents and promptings for this stream of research. Known collectively as “variance decomposition literature,” these studies use variance decomposition techniques to partition firm performance into various classes of effects in a bid to unveil the relative importance of factors responsible for firm performance variance.

A review of papers published in SCOPUS and institute for scientific information indexed journals was conducted.

The study found that firm, industry, corporate, business group and country effects are the major effects included in most extant studies. However, of all effects, firm effects remain the dominant and most important impact on firm performance. The effects that affect firm performance are also interdependent.

Consequently, the decisions of managers in firms are still the most important element in helping the firm to navigate industry and contextual factors, especially during periods of recession.

From the review, research gaps were identified and suggestions for future research provided. There is still much to learn from variance decomposition literature in an age of new business models, unprecedented start-up firms and from developing and emerging market countries.

The importance of regional strategy as a separate paradigm in the international business literature has grown in recent years, and the initial connections between regionalization and firm performance appear promising. What is lacking, however, is an empirical analysis quantifying the impact of regional effects on firm profitability. This topic is an important one for the field of international business, as drivers of firm profitability are some of the key motivators of research in international strategy. The aim of this paper is to empirically quantify the role of regional effects on the performance of service firms in a manner such that regional effects can be directly compared with country and firm effects on firm profitability.

Using a hierarchical linear model (HLM) with four levels, the proportion of variation driven by regional effects is estimated. These estimates are obtained from a data panel of 48,083 units from 7,129 service firms across the three triad regions (North America, Europe, and Asia Pacific) over a ten-year time-frame (1999-2008).

It was found that regional effects, in terms of relative importance, explain approximately 9 percent of the variance in firm performance. This pattern of results is consistent when the analysis was conducted during periods of increasing or decreasing profits, firm type, and ownership structure.

Within the context of international business, work on regional strategy/regionalization has emerged as a separate stream of literature. This study is one of the first to quantify the influence of regional effects on performance using a 4-level HLM model. Additionally, this paper demonstrates the application of a 4-level model, potentially increasing awareness of this technique and usage in other multilevel topics in the IB literature, which offers several avenues for future research.

The aim of this paper is to examine rent sharing under a heterogeneous workforce using Finnish linked employer‐employee data in 1987‐1998. Rent sharing is one component of the empirically estimated firm‐effect and depends on the sensitivity of firm‐level payments to quasi‐rents. It is shown that rent sharing moderates other forms of firm‐level wages. Thus, the lower the starting wages, the higher rent sharing will be. Alternatively, in many firms new workers are attracted to the job by paying high entry wages, while these new workers do not obtain the full level of rent sharing in the first years of service. Highly educated workers are the main targets of rent sharing and rent sharing is more common in R&D‐intensive firms. All this shows the importance of human capital accumulation and flexible technology in explaining rent sharing. This can also explain why rent sharing is targeted at experienced workers in R&D‐intensive firms. In non‐R&D‐intensive firms, job search is also of importance. Rent sharing is more common when highly educated workers have flexible labour supply.

The purpose of this paper is to explore location effects on firm performance in emerging economies simultaneously accounting for permanent and transitory country, industry, country-industry and firm-specific effects.

The authors utilize a novel methodological approach: an autoregressive, cross-classified, mixed-effect linear regression model that allows them to simultaneously estimate a permanent (long-run) component, a transitory (short-run) component and the speed of decay of the transitory (autoregressive) component.

The authors find that the firm-specific effect is most important in explaining permanent and transitory differences. The country–industry interaction is the second most important effect, confirming that industries are not completely global and are still subject to country conditions. Broader views of the country–business context and industry conditions taken independently would be incomplete unless the country–industry interactions are considered. In other words, country matters because industry matters and vice versa. Country effects are also significant, but only transitory emphasizing the dynamic nature of emerging economies and the shortcomings that may result from considering the country business context static. Finally, the authors find that the chances of achieving sustainability of abnormal returns in emerging economies are dynamic and have significantly increased recently.

To the authors' knowledge, this is the first to simultaneously estimate country, industry, country–industry and firm effects on the permanent and transitory components of abnormal returns in a sample of emerging economies. The study generates important evidence regarding the sources of sustainable differentiation for firms competing in emerging economies. Finally, the authors find that chances of achieving sustainability of abnormal returns in emerging economies are dynamic and have significantly increased recently.

Literature, spanning industrial organization and strategic management disciplines, uses variance decomposition to understand the relative importance of firm, industry and business group effects in shaping profitability variations. Some literature analyzes firm profitability under transition to liberalization. Previous research has taken a static before-and-after view on institutional change. This paper aims to focus on the dynamic process of liberalization in India, analyzing how different institutional regime changes alter firm behavior leading to changes in profitability patterns.

Based on a panel data set of several thousand Indian firms, spanning the 26-year period between 1980-1981 and 2005-2006, the authors determine the relative importance of firm, industry and business group effects in explaining manufacturing firms’ profitability variances across different institutional phases. The authors evaluate three propositions that help assess transition dynamics between phases. They determine the quantum of catch-up or falling behind by firms.

Different industries emerge as profitability leaders, as the economy progresses through different liberalization phases. Business groups that have been more effective in resource appropriation, rent-seeking, politician management and non-market activities in a controlled regime are replaced as profit leaders by those that, in a free-market economy, can be capable of intra-business resource allocation tasks and leveraging corporate capabilities.

The approach demonstrates how to analyze the underlying detailed structure of firm-level data, and performance outcomes, to derive nuanced interpretation of factors giving rise to the effects that explain profitability variances, and how to assess the way these effects behave over time. The dynamic evidence-based approach highlights what factors matter, where, when and why, in influencing profitability variances, which are a key dimension of industrial and economic performance.

The purpose of this paper is to examine the magnitude of country, industry and firm‐specific effects for firms competing in emerging economies and also explore differences between high and low performers.

The authors use ANOVA methodologies on samples from firms competing in Latin America between 1990‐2006.

It was found that the firm‐specific effect is the most important one, and relatively equivalent in magnitude to the firm‐specific effects found in developed countries. Country and industry effects are less important than the firm‐specific effect. Contrary to previous studies that indicate that the country effect is relatively more important in emerging economies, the authors found that it is even less important than the industry effect, a result that has important implications for strategic management and international business theory. The source behind the strong firm‐specific effects might stem from their resources and capabilities to manage and take advantage of the institutional and macroeconomic environments. Further analysis indicates that the firm‐specific effect is relatively more important for firms showing high performance than for those firms showing low performance.

Through these findings the authors feel that further research is needed so as to arm future managers with a more clear and comprehensive strategy when doing business in a Latin American country. The paper's findings are specific for large public corporations in Latin America.

The paper allows managers to think about sources of competitive advantages in emerging economies.

The paper shows that, despite weak institutional contexts and highly volatile macroeconomic environments, managers in the region should be able to obtain substantial differences in economic performances within the region. Activities needed for such differentiation might differ from those carried out in developed countries, with more emphasis on managing institutional voids and periods of economic and political cycles but the result should be the same.

The purpose of this study is to examine the relationship between the corporate social responsibility (CSR) performance of job-hopping executives at their former and subsequent firms.

We conduct regression analyses using a sample of firms listed on the Shanghai and Shenzhen Stock Exchanges from 2010 to 2020 to examine whether CSR performance is similar from one firm to the next as executives switch jobs.

We find a positive relationship between the CSR performance of former and subsequent firms under job-hopping executives. This relationship is the strongest in the year of the job switch; it weakens in the second year and eventually disappears in the third year. In addition, we show that this relationship benefits different CSR stakeholder groups and is contingent on executive and subsequent firm attributes and job-hopping characteristics. Furthermore, we demonstrate that firms that hire a new chief executive officer from a firm with a strong track record in CSR, the new firm experiences a significant surge in CSR performance compared with firms that do not experience such a shock.

This study has implications for executive hiring decisions.

This study extends the understanding of CSR determinants through the lens of inter-organisational ties associated with job-hopping executives.

Panel data, where observations of entities are repeated over time, are common in strategic management research. However, explorations of the role of time on predictors of interest are often unexplored. In this chapter, we illustrate how the use of mixed-effect growth models can enhance theory and research in strategic management by exploring changes in outcomes of interest over time. Mixed-effects models allow for testing both within and between effects, while also calculating specific intercepts (firm average values) and slopes (trajectories of specific firms over time) using empirical Bayes estimates. We also illustrate how a discontinuous growth model could be used to assess differences in firm intercepts and slopes surrounding exogenous events (e.g., global pandemics) without requiring a control group.